DOE holds off on LPG regulatory changes…

Sent to clients 25 Oct….In a briefing to the Portfolio Committee on Energy on the report by the Competition Commission (CC) into the Liquified Petroleum Gas (LPG) sector, acting Director General of the Department of Energy (DOE), Tseliso Maqubela, has again told Parliament that the long-standing LPG supply shortages are likely to continue for the present moment until new import infrastructure facilities come on line.

He was responding to the conclusions reached by the CC but reminded parliamentarians at the outset of the meeting that the Commission’s report was not an investigation into anti-competitive behaviour on the part of suppliers but an inquiry, the first ever conducted by the CC, into factors surrounding LPG market conditions.

Terms of reference

In their general comments, the Commissioner observed that the inquiry commenced August 2014 on the basis that as there were concerns that structural features in the market made it difficult for new entrants and the high switching costs for LPG gas distributors mitigated against change in the immediate future.

They worked on the basis that there are five major refineries operating in South Africa, these being ENREF in Durban, (Engen);

engen durban refinery

SAPREF in Durban, (Shell and BP); Sasol at Secunda; PetroSA at Mossel Bay; and CHEVREF in Cape Town (Chevron). There are four wholesalers, namely Afrox, Oryx, Easigas and Totalgaz.

Wholesalers different

As far the wholesalers are concerned, in the light of all being foreign controlled, CC also observed that transformation was poor, but this was not an issue on their task list, they said. They had assumed therefore that BEE legislation was difficult to enforce and that the issue had been reported to the Department of Economic Development, the portfolio committee was told.

Price regulation at the refineries and at retail level is supposedly determined by factors meant to protect consumers, the CC said, but their inquiry report noted no such regulations specifically at wholesale level. This fact was stated as being of concern to the CC in the light of known “massive profits in the LPG wholesaling sector”.

Structures

Commissioner Bonakele said, “We started the inquiry because of the worrying structures of the market but in benchmarking our market structures with other countries and we found LPG in SA was not only unusually expensive but was indeed in short supply. Why? When it is so badly needed, was the question, he said

The CC established from the industry that about 15% of LPG supplied is used by householders and the balance is for industrial use. In general, they noted that there were regulatory gaps also in the refining industry but regulatory requirements were over-burdening they felt and contained many conflicts and anomalies.

The CC had also reported that the maximum refinery gate price (MRGP) to wholesalers and the maximum retail price (MRP) to consumers were not regulated sufficiently and far too infrequently by DOE.

Contentious

There needed to be one entity only regulating the entire industry from import to sale by small warehousing/retailers, they said. The CC suggested in their report that the regulatory body handling all aspects of licensing should be NERSA .

As far as gas cylinders were concerned, Commissioner Bonakele noted in their report that there are numerous problems but their criticism was that the system currently used was not designed to assist the small entrant. The “hybrid” system that had evolved seemed to work but there was a “one price for all” approach.

DOE replies

In response, DG Maqubela confirmed that the inquiry had been conducted with the full co-operation of DOE into an industry beset with supply and distribution problems, issues that were only likely to change when there were “adequate import and storage facilities which allowed for the import of economic parcels of LPG supplied to the SA marketplace.”

When asked why local refineries could not “up” their supply of LPG to meet demand, DG Maqubela explained that only 5% of every barrel of oil refined by the industry into petroleum products could be extracted in the form of LPG. Therefore, the increase in LPG gas supplied would be totally disproportionate to South Africa’s petrol and diesel requirements.

Going bigger

Tseliso Maqubela, previously DG of DOE’s Petroleum Products division, told the Committee that two import terminal facilities have recently been commissioned in Saldanha and two more are to be built, one at Coega (2019) and one at Richards Bay (2021). These facilities were geared to the importation of LPG on a large scale.

He said, in answer to questions on legislation on fuel supplies, that DOE were unlikely to carry out any amendments in the immediate future to the Petroleum Pipelines Act, since the whole industry was in flux with developments “down the road”. It would be better to completely re-write the Act, he said, when the new factors were ready to be instituted.

Rules

On the regulatory environment, DG Maqubela pointed out that for a new refinery investor it would take at least four years to get through paper work through from design approval to when the first spade hit the soil. This had to change. The integration of the requirements of the Department of Environmental Affairs, Transnet, the Transnet Port Authority, DTI, Department of Labour, Cabinet and NERSA and associated interested entities into one process was essential, he said.

On licencing, whilst DOE would prefer it was not NERSA, since they should maintain their independence, in principle the DOE, Maqubela said, supported the view that all should start considering the de-regulation of LPG pricing. He agreed that DOE had to shortly prepare a paper in on gas cylinder pricing and deposits which reflected more possibilities for new starters.

MPs had had many questions to ask on the complicated issues surrounding the supply, manufacture, deposit arrangements, safety and application of cylinders. In the process of this discussion, it emerged, once again, that LPG was not the core business of the refinery industry and what was supplied was mainly for industrial use. The much smaller amount for domestic use met in the main by imported supplies for which coastal storage was underway over a five-year period.

Refining

DG Maqubela noted that on Long Term Agreements (LTAs) between refineries and suppliers, DOE in principle agreed with the Commission that LTAs between refiners and wholesalers could be reduced from 25 years to 10 years, to accommodate small players. Again, he said, this would take some time to be addressed, as was also an existing suggestion of a preferential access of 10% for smaller players.

All in all, DG Maqubela seemed to be saying that whilst many of the CC recommendations were valid, nobody should put “the cart before the horse” with too much implementation of major change in the LPG industry before current storage and supply projects were completed.

However, the current cylinder exchange practice must now be studied by DOE and answers found, Tseliso Maqubela re-confirmed.Previous articles on category subjectOverall energy strategy still not there – ParlyReportSAGas undoubtedly on energy back burner – ParlyReportSACompetition Commission turns to LP gas market – ParlyReportSA

A lot going on at Central Energy Fund…..

Central Energy Fund (CEF), the state utility which controls the Strategic Fuel Fund (SFF) and fosters PetroSA, has again been outside of a plan that has Parliamentary approval or, it appears, Treasury knowledge. CEF falls under the aegis of the Department of Energy (DOE) and is therefore responsible to Minister of Energy, Tina Joemat-Pettersson. Clearly there is much going on of which Parliament knows nothing – in recess as it is.

The history of CEF’s problems go way back before the period during which previous Minister of Energy, Ben Martins, held office and even before Ben Martins, as an MP was chairperson of the Parliament Portfolio on Energy. Most of CEF’s troubles appear to involve the fuel storage facilities at Saldanha Bay on the West coast and PetroSA’s operation on the East coast, causing considerable negative comment from the portfolio committee and Ben Martins himself at the time. Sadly, Minister Martins was not chosen to remain by President Zuma.

Quite clearly a plan has been hatched to meet Cabinet ambitions.

Glaring omission

It was only after Minister Joemat-Pettersson’s current budget vote speech did the investigative journalism of the newspaper media discover the sale of almost completely the entire SA reserve oil stock of the Strategic Fuel Fund (SFF) held at Saldanha Bay.

Not only was the sale concluded without any mention but the quantity of fuel involved appears to have been a major financial decision undisclosed in any cabinet statement. It appeared that CEF had allowed SSF to sell 10 million barrels of crude — close to the entire stockpile — in a closed tender at the point that the oil price had bottomed at somewhere around R34 Brent.

It also appears that this was without the agreement of Finance Minister Pravin Gordhan and Treasury whose concurrence is needed under the Central Energy Fund Act. How this will play with Treasury and the Auditor General is not clear, nor whether when and how CEF intends to replace this. The Democratic Alliance will no doubt be asking for answers in parliamentary question papers.

What the Minister said

It is interesting to note exactly what the Minister had to say to Parliament about SFF in holding back, it appears, on such major financial move. She told MPs that in line with the Presidential Review Commission on State Owned Entities (SOEs) that her Ministry had been working towards “a review of the composition of the CEF Group of companies.”

She went on to say, “Our work in this area includes the strengthening of the entities in the oil and gas sector and the stated policy objective of the creation of a stand-alone national oil company, using PetroSA as a nucleus.” SFF had a good revenue base, she said.

“We shall finalise this work by October 2016”, Minister Joemat-Pettersson said and she would revert to Parliament on Cabinet views and strategies for a revised energy sector framework. “Accordingly, in 2015, the Ministry of Energy issued a ministerial directive for the rotation of strategic stocks in the SFF and this has resulted in an increased revenue base for SFF whilst at the same time maintaining stocks within our storage tanks for security of supply.”

Long term view

“This as a result, the Minister continued, “of a long term lease and contractual agreements with the buyers. The estimated revenue to accrue from this process is around R 170 million per annum, significantly boosting the balance sheet of the SFF.”

The Minister concluded that through the rotation of strategic stocks and trading initiatives the SFF had further consolidated its ability to be self-sustainable. “This has also allowed us to replace the unsuitable stock that we have been storing in our tanks which has been both uneconomical and did not contribute to security of supply.”

“The SFF will continue to ensure that it is able to respond to any shock in the market, whilst optimally making use of the opportunities presented in an evolving oil sector”, she concluded regarding West coast activities.No figures were given nor a clear indication mentioned that a sale had been concluded.

However she was particular in supplying numbers regarding the joint venture between Sasol and Total when she said, ” Effective from 1 July 2006, Sasol Oil sold 25% of its shares to Tshwarisano LFB (Pty) Ltd, a broad based black economic empowerment consortium comprising of 150,000 direct shareholders and 2,8 million beneficiaries. The value of this transaction amounted to nearly R1.5 Billion, making it a significant BEE transaction in the liquid fuels industry.”

Trading nightmare

Therefore, the sale of nearly the entire reserve held by SFF, whether it is kept in the same tanks at Saldanha or not, at an oil price when at it’s very lowest, “suitable” or not, and being obliged by the Act to eventually replace it some later point should get an explanation. However, it seems that there was an incentive to sell.

Also, to have to buy back at an oil price which is currently already well over double would appear to be completely against the tenets of the Public Finance Management Act; what the Auditor General is bound to call “fruitless and wasteful expenditure”; and contradictory terms of the Minister’s statement to Parliament that the SFF “has the ability to be self-sustainable”. Unless, of course it is bolstered by external funds.

Gas nightmare.

Parliament is of course closed for the election recess but no doubt there will be a parliamentary uproar on the subject – if not an investigation, which will come on top of the further current investigation of CEF’s activities as far as PetroSA is concerned.Once again the question will arise on how it was possible for PetroSA to continue with Project Ikhwezi when drilling for gas for two years in an area already defined by experts as impractical in lieu of fault lines in the projected gas field.

Central Energy Fund seen as politically driven

R11.7bn was the total “impairment” of PetroSA, the result of underperformance of Project Ikhwezi in its efforts to supply gas onshore to Mossgas. The total PetroSA loss for 2014/5 was in reality R14.6bn after tax. Currently a team comprising of industry experts is now defining a new strategy to save the PetroSA in its offshore struggle on the East coast, according to DOE reports to Parliament.

The experts were not named but the exercise is entitled Project Apollo and reports were also given to Parliament that the team has progressed well so far, said controlling body Central Energy Fund during 2015.

PetroSA was originally flagged by Cabinet some twelve years ago as “South Africa’s new state oil company”. Last year, CEF described at the time PetroSA’s performance in their annual report to Parliament as “disappointing”, resulting in harsh criticism last year from the Portfolio Committee on Energy. The subject was not raised this year by the Minister in her Budget vote speech.

Failed deal

What, however, was raised in opposition questioning in the National Assembly by Pieter van Dalen, DA Shadow Deputy Minister of Energy, was Central Enegy Funds venture into the proposed purchase of Engen’s downstream activities from Malaysian company Petronas, known as “Project Irene”. This was understood to be the Cabinets secret plan to own the promised state oil company.

The purchase from Petronas, who own 80% of Engen, was an attempt through Central Energy Fund to gain a foothold in the fuel retail and forecourt space by acquiring a stake in Engen, South Africa’s largest fuel retailer. The remaining stake is held by the Pembani Group.

First try

The board of PetroSA was repeatedly advised by both transaction advisers and the Treasury, according to Deputy Shadow Minister van Dalen, “that the proposal to buy the Engen stake did not make good business sense.” “However,” van Dalen said to MPs, “the project was strongly championed by Minister Joemat-Pettersson and President Jacob Zuma. In the end, the deal fell through due to lack of financing.’These sort of things cannot go on”, he said.

The last word

This particular meeting in the National Assembly was completed by Shadow Minister of Energy, Gordon Mackay, attacking the Minister for “misleading the country on nuclear energy deals.”

He concluded after a long speech on the subject of the proposed nuclear build programme and what he referred to as “anomalies”, with the remark “We must ask ourselves Chair – why is our government doggedly pursuing this nuclear deal. It is clearly not a deal in the interests of the poor. It is clearly not a deal in the interests of business. It is clearly not a deal in the interest of the nation.”

Gordon Mackay did not know about the Chevron approach, or at least he did not indicate that he did.

Previous articles on category subjectCentral Energy Fund slowly gets its house in order – ParlyReport PetroSA on the rocks for R14.5bn – ParlyReportSA Chevron loses with Nersa on oil storage – ParlyReportSA

Treasury determined on carbon tax…..

Insofar as the policy behind the need to implement a carbon tax, for whatever reason, there appears to a vast disconnect between cabinet and the various affected government departments, treasury and energy users, said Mike Roussow, head of the Energy Intensive Users Group (EIUG).

This main point arose in a discussion group called together by chair, Sisa Njikelana, of the parliamentary portfolio committee of energy in an attempt to find some common group on the need for such a tax. He had invited the various parties for a round-table discussion on the subject in order to put their views.

Major run in

Present at the meeting were such major players such as Eskom, Exxaro, BHP Billiton, the South African Petroleum Industry Association (SAPIA), the pulp and paper industry and Sasol. Treasury was represented by treasury directors Ismael Mamoniat and Cecil Morden.

However, with only members of the portfolio committee on energy present but no representatives of department of energy (DoE), department of water and environmental affairs (DWEA) or department of agriculture and fisheries (DAFF), nor any other portfolio committees such as trade and industry or environmental affairs, the discussions had little depth, said Rossouw.

Little by little says treasury

Treasury added to the discussion by stating that the point of departure was the White Paper on Climate Change and this was the basis for the tax proposals before them. The object was to change behaviour but unlike smoking legislation, such a tax would be introduced at a very low level so that energy users with emissions got used to the idea, thus giving a longer period to adjust, bearing in mind the costs of doing so.

“The worst scenario would be to wait and to introduce a sudden and crippling tax in years ahead” said Mamoniat. The treasury officials referred to shale gas and sea gas possibilities, recognizing that these may change the energy mix or the energy scenario, and treasury officials noted that whilst business did not like taxes and would object to their introduction on principle, a system had to be started and once going this would change behaviour.

Why be first, says business

Much of the debate centered around the fact that South Africa, with its slow rate of economic growth, business was not in a position to contribute to being a world leader, least of all being amongst the first to introduce such a tax globally. “Perhaps we should not be leaders, but simply fast followers”, said one party to the debate who objected to the tax.

Eskom said it was saving most of its comments for the official responses to the carbon tax policy proposals recently gazetted but said that every unit it had was running at full capacity during the winter period and the cold weather currently being experienced, all effort being expended to accommodate the integrated resource plan (IRP), the anchor document for energy direction “to which the carbon tax proposals makes not one reference”, they complained.

Ducks not in a row, says Eskom

The Eskom team presenting, headed by Ms Caroline Henry, acting finance director, was pointed when said it was totally premature to introduce such a tax especiallywhen DWAE and DOE were still working on producing an integrated energy plan for the country. The treasury proposals, she said, represented bad timing in every respect, bearing in mind that President Zuma had already announced that the country had no intention in changing its investment conditions or the economic scenario with any new conditions. Such proposals were totally inappropriate therefore at this time, Eskom said.

Eskom added that the IRP already came up with a 34% savings factor on emissions but what was not needed at this stage, they concluded, were additional costs and further taxes added to a plan they had been working to for a long time. Mamoniat appeared unmoved by this objection.

Sasol firm in objections

Sasol volunteered the remark that to introduce a carbon tax fully knowing that the country was totally reliant on coal gave the impression that they were out of touch with reality. They pointed to the fact that cost of the country’s exports were mainly energy intensive resulting in South Africa loosing competitiveness, if this course were adopted.

Sasol agreed that a carbon tax was one of many tools that could be used in causing industry to further mitigate the effect of carbon emissions but its introduction now was premature, they said. The costs to Sasol would be prohibitive in any case when applied to certain operations.

“We should not introduce a tool that can make no difference to a situation”, said the Sasol representative, who added, “Asking not to introduce a tax is not to say we are doing nothing. Plenty is being done in mitigation of emissions. This country is one of the leaders carbon reduction programmes worldwide”, they added.

Liquid fuels industry over committed

SAPIAcalled for a practical approach and asked what really the industry could do that was not already being done. Already the petroleum industry was over-committed to modernisation and new fuel specifications. The current world oil importation story placed the industry in a delicate position, as treasury must have surely realized, they said.

Quite clearly in the petroleum industry, said SAPIA, there is no satisfactory return on investment and the only sensible recourse in their mind was to provide conditions where the motorist was called upon to reduce consumption.

EIUG queries common approach

EIUG repeated their initial supposition that there appeared no joint departmental overall government approach to such a tax which appeared to be the brainchild of treasury, possibly in conjunctions with DWEA. They said that it appeared that neither appreciated how much was already done and what was being planned in terms of the climate response policy calls, both globally and locally.

“We cannot and should not be the world leaders in the introduction of carbon tax”, they said. “Aside from this, there are many things wrong with the way the tax is constructed.”

Eskom queries basis of tax

Eskom concluded that it was disingenuous of treasury department to suggest that nobody was doing anything answer to reduce emissions. In any case, the tax was not being introduced at a low rate, they said and Eskom produced figures showing the tax as suggested when applied to current production output numbers which they said would be quite crippling. They added that the effects of the tax on the Medupi and Kusile power station projects when in production totally contradicted treasury calculations on the same subject.

The discourse was closed by the chair on the note that carbon tax as a proposal could not proceed in a vacuum and he acknowledged the point that it seemed reasonable not to consider this before the production of the final integrated energy plan had been tabled and agreed upon, let alone agreement on the final energy mix involving nuclear, gas and clean energy renewables.

Treasury appears dedicated to tax

Parliament is now empowered to deal with a Money Bill as a result of the 2011 amendments to the Constitution should the carbon tax policy paper result in a draft Bill for public comment but it could be considered unusual in these early stages of parliamentary development on the issue to exercise such muscle and the matter no doubt depends on what message comes down from cabinet to party whips. The Bill would come from the Minister of Finance.

Refer previous articles in this categoryhttp://parlyreportsa.co.za//cabinetpresidential/treasury-sticks-to-its-guns-on-carbon-tax/http://parlyreportsa.co.za//cabinetpresidential/carbon-tax-not-popularly-received-by-parliament/

The Gas Amendment Bill was about to be tabled in Parliament as part of the overhaul of the Gas Act, energy minister, Dipuo Peters, confirmed in her budget vote speech, the draft of the Bill having been approved by cabinet in April of this year and published for comment in June. According to a media statement by department of energy (DoE) on the draft Bill, certain omissions in the Gas Act of 2001 are addressed such as inadequate powers conferred on NERSA, the need for speedier licensing and clarity on pricing and tariffs. Stakeholders from industry have been involved.

Much of the new Bill according to DoE in the energy presentations to Parliament will reduce the risk of South Africa having an “underdeveloped natural gas sector” with consequent implications to the security of energy supply.

Transportation addressed

Attention in the draft Bill is paid to unconventional gases not included in the original Act, along with technologies for transporting natural gas in liquid and compressed form. The new draft Bill also clarifies NERSA’s functions in the many processes and stages that involve gas between exploration to sale in containers, including storage.

During the ministers recent briefing, the attention of the media for assistance in promoting LP gas as a safe alternative to electricity.

The many re-definitions included in the draft reflect the changing nature of gas exploration in South African waters; the possibility of gas reticulation; the changing nature of gas storage and complexities of LP gas consumer issues.

Sasol big player

In piped gas, Phindile Nzimande, CEO of NERSA recently told parliamentarians that the maximum prices for such were dealt with in regard to Sasol, this being the last year of the “maximum price” arrangement. In petroleum pipelines, the Transnet annual increase was set at 8.53%, again with much controversy, and decisions were made on 60 storage and loading facilities.

There was still a major lack of credible gas anchor clients in piped gas, Nzimande said, nor was there an established and regular supply chain and serious competition, resulting in high prices for the poor. NERSA had much work to do in this area, she said, as far as compliance monitoring and enforcement was concerned.

The following articles are archived on this subject:http://parlyreportsa.co.za//uncategorized/more-hints-that-gas-act-amendments-on-the-way/ http://parlyreportsa.co.za//energy/south-africa-at-energy-crossroadsdoe-speaks-out/

Unlicensed pipeline operations a problem….

Commenting that the petroleum and gas industry did not seem to take licensing particularly seriously but the electricity industry did, Phindile Nzimande, CEO of the National Energy Regulator (NERSA), gave a characteristically outspoken report to the parliamentary committee on energy on NERSA’s strategic and plan until 2016.

She noted that NERSA had investigated sixty seven suspected unlicensed activities in petroleum pipeline activity, only four of which were found to not require a licence. Thirteen petroleum storage licences were revoked.

NERSA not changing plans

Nzimande said that NERSA found no reason to alter their five-year plan as originally submitted in 2012 and NERSA would continue with its mandate of transparency, neutrality, predictability and independence. It has been a busy year, she said, not the least of which was the extraordinary amount of work generated by Eskom tariff application, the national hearings process and the time involved in decision making.

In the area of electricity generally, 183 municipal and private distributor tariffs were given approval and 47 energy generation licences granted. 9 distribution licences for connection facilities between Eskom and an independent power producer (IPP) were also granted.

Sasol back to listed tariff next year

In piped gas, Nzimande told parliamentarians that the maximum prices for such were dealt with in regard to Sasol, this being the last year of the “maximum price” arrangement. In petroleum pipelines, the Transnet annual increase was set at 8.53%, again with much controversy, and decisions were made on 60 storage and loading facilities.

There was still a major lack of credible gas anchor clients in piped gas, Nzimande said, nor was there an established and regular supply chain and serious competition, resulting in high prices for the poor. NERSA had much work to do in this area, she said, as far as compliance monitoring and enforcement was concerned.

Costly multi-product line

In the area of petroleum pipelines, Nzimande said the “prudency” investigation into the cost of the multi product Durban/Gauteng pipeline was a major undertaking and NERSA was also involved with Transnet on the issue of high port charges which had become a national issue.
The security of supply of petroleum to inland areas was also a matter of deep concern, Nzimande said, and NERSA was “working with stakeholders”. When asked how NERSA was monitoring this she said the matter was very much up to the investors concerned but she was aware that department of energy “was grappling with the issue” and NERSA was closely following the matter which had to be taken in to consideration on pricing matters.

Local government problems

On tariffs generally, Nzimande said a major issue facing NERSA was the legal issue of regulatory relationships with municipalities and their powers in respect of enforcing licensing and pricing structures. This was to be resolved shortly.

When asked if Eskom would be allowed to re-visit the issue of their tariff structure finally allowed and appeal, Nzimande said that she could not say that that such a move could be excluded as a legal part of the multi-year price determination process. The chair excused her for answering questions on the Alstrom and Hitachi legal wrangle on the Medupi power plant currently under construction by Eskom but she acknowledged that NERSA was aware of Eskom’s problems and financing issues.

NERSA and NNER?

When asked why NERSA and the structures of nuclear regulatory matters were not combined into one regulatory body, Nzimande replied that international agreements and the structure of the nuclear global industry was specific on this issue and required specific nuclear regulators with specific mandates for their own countries to be established. The work and relationships of a nuclear regulatory authority were very different, she said.

She agreed with complaints regarding difficulties in the petroleum storage area and confirmed that the regulations may have to be re-written in this regard. She was specific that NERSA would look into the issue of tariffs for storage, since one member complained that the current high cost structures could well be acting as a disincentive to investment.

On briefing parliamentarians in the portfolio committee on energy on fuel pricing in South Africa and the planned “roadmap” for the future of liquid fuels being undertaken by government, Muzi Mkhize, DG of hydrocarbons in the department of energy (DOE), indicated that South Africa would continue on its current course of formula-based fixed fuel pricing for the foreseeable future.

He said this was DOE’s preferred option rather this than go for a “liberalised” system, such as is the case in Australia, where market forces operate within a structure overseen by a state consumer and competition watchdog.

The department’s director for petroleum and petroleum infrastructure policy, Jabulani Ndlovu, told parliamentarians that the import parity pricing system was being retained, with zonal pricing fixed according to magisterial districts.

A transport cost allowance built in based on least price working from pipeline to rail, then as last option, road delivery will continue.

Under questing from MPs as to whether Sasol would ever be allowed to operate independently and fix its own possibly lower prices, he said that both Sasol and those imported crude oil and who had built refineries locally to all had to be equated in the same pricing model.

If Sasol were to follow such a course, Ndlovu said. The consequent consumer shift would be totally beyond Sasol’s capability to supply and at the same time threaten the whole of the current national refining structure, particularly where continued investment was needed by current oil companies as far as the development of cleaner fuels was concerned. He told parliamentarians that a course involving a completely free market would never be on the department’s strategic agenda.

Ndlovu explained that the basic fuel price (BFP) was based on a parallel pricing structure, or comparison made with an “importer buying the refined product from overseas seller and transporting the same to the market place in South Africa incorporating such costs as losses at sea and landing.” It is to be assumed that he also meant to include storage costs.

However, Ndlovu said, the BFP system resulted in under and over recoveries in the light of changing crude oil prices on an agreed global market cross section and the national BFP, calculated on the first Wednesday of each month, corrected the previous month’s price differential. But then levies had to be added, he said.

This amounted to a pipeline levy run by Transnet to the interior for capital cost recovery; a levy on the quantity pumped whatever the product and a dye levy to curtail the illegal mixing of paraffin and diesel.

He then explained to parliamentarians that in addition there was a “slate” levy, a self-adjusting mechanism to finance the effect of cumulative petrol and diesel grades under recoveries realised by the petroleum industry and run by SAPIA, the petroleum association, in response to daily changes between the BFP and the petrol and diesel and price structures as announced by the state monthly as per the monthly fuel price media statements. The “slate” is cleared when reaching once exceeding R250m and re-distributed back to the industry.

On the issue of illuminating paraffin (IP) and liquified petroleum gas (LPG) the formula for each was explained, most of the problems existing, particularly in the case of IP, where products were sold on the open market and exploitation of the poor in rural areas often took place due to lack of alternative sources.

On external exported finished product, a number of neighbouring countries who bought diesel and petrol products from SA did not necessarily have the same structure of levies, Ndlovu said, accounting for the fact that sometimes landlocked neighbours had fuel that was cheaper than in SA.

On the 20-year “roadmap” that was being planned for South Africa by DOE in an attempt to ensure that the country retained access to “reliable, affordable, clean, sufficient and sustainable sources of energy to meet the country’s demand for liquid fuels”, DOE confirmed that the department was three months behind in producing such a plan.

This Jabulani Ndlovu said, was because of the “difficulty in getting data from the oil companies” but under questioning from MPs, he admitted that there has been incompatibilities in the way questions were put to stakeholders making the answers difficult to supply due in the main to a lack of understanding on how the industry worked and separation of data facts according to the question asked.

He said DOE had leant much in the process of compiling such a “roadmap” and that it was being undertaken to encourage investment, promote diversity of supply to deal better with supply disruptions and to ensure an “integrated government response in dealing with issues on liquid fuels.”

DG Muzi Mkhize promised that the plan would be released in draft form by 30 January 2013 and the final report published by 15 February. He said he hoped DOE would be undertaking a refinery audit next year.

Neither DG Mkhize nor Jabulani Ndlovu would be drawn on the subject of “Project Mathombo”, PetronetSA’s proposed refinery for the Coega port area, nor would they be drawn on how the products would reach the market, whether by pipeline or rail.

Ndlovu said that this, they understood, was still in “feasibility study stage” with an international funder and the whole issue of any finished product emanating from the Eastern Cape had not been taken into account in the “roadmap”.

SARS role at border posts being clarified …. In adopting the Border Management Authority (BMA) Bill, Parliament’s Portfolio Committee on Home Affairs agreed with a wording that at all future one-stop border […]